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TMI Blog2018 (1) TMI 1077X X X X Extracts X X X X X X X X Extracts X X X X ..... n - Held that:- Respectfully following the order of Tribunal in assessee’s own case for the A.Y.1996-97, we do not find any infirmity in the order of CIT(A) for deleting the addition made on account of disallowance of depreciation on plant and machinery wherein held that the machine in question is used for cutting and wrapping confectionary toffees and were delivered at ready to use condition. Thus, it is evident that the machine has no role to play in the production activity. Therefore, when the learned Commissioner (Appeals) has accepted the fact that the machine was purchased and commissioned and formed part of the fixed asset in the relevant financial year, there is no reason to disallow assessee's claim of depreciation. Disallowance on account of foreign travel expenses - Held that:- As during the year under consideration, assessee has incurred foreign travel expenses for visit of Directors as well as Executives to Switzerland. As per the noting on passport, the travel was for the purpose of business. The correspondence with the foreign parties also indicate that travel was for business purpose. Thus restore the matter back to the file of the AO for deciding afresh Disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks of accounts cannot be said to be complete. He erred in observing in para 3,.4 of his order that the assessing officer has not specifically invoked the provisions of section 145 of the Act but the manner in which the appellant's income has been estimated is indicative of the same. He further erred in observing in para 3,4 of his order that in this context, as pointed out earlier, the Id. A.O. has brought out that the books of accounts of the appellant are not complete in as much as these do not enable the determination of the profits of the classes of products manufactured by the appellant. 2 The learned Commissioner (Appeals) erred in confirming an addition of ₹ 2,35,74,949 out of an addition of ₹ 9,76,18,200 made by the assessing officer on account of alleged suppressed production resulting into suppressed sales of biscuits. He erred in comparing the yield derived by the appellant's factory in Mumbai with that of its Contract Manufacturing units. 3 The learned Commissioner (Appeals) erred in confirming an addition of ₹ 26,46,754 out of an addition of ₹ 63,01,795 on made by the assessing officer on account of alleged suppressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. It also gets some of the items manufactured on contract basis from various Contract, Manufacturing, Units (CMUs) located all over the country. Ten of the CMUs were manufacturing biscuits and 5 of the CMUs were manufacturing confectioneries. The technical knowhow as well as the raw material for the CMUs is provided by the assessee and the manufacturing in the CMU is conducted under the direct supervision of employees of the assessee. From the details filed, the Ld. A.O. observed that the yield for this manufacture was 82.677% in assessee's own unit whereas the average yield in the CMUs was 91.277%. After considering the explanations given by the assessee, the Ld. A.O. noted that while most of the CMUs were manufacturing biscuits identifiable by the trade name 'Parle-G', the assessee's own manufacturing unit produced both Parle-G biscuits and other biscuits. No separate registers was being maintained in the assessee s manufacturing unit which could lead to the determination of the yield in the manufacture of Parle-G biscuits and other biscuits separately. He also noted that some of the CMUs were also manufacturing biscuits other than Parle-G and their yield was al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of alleged separate suppressed production resulting in suppressed sales of biscuits. The AO has dealt with these issues the order at para 2 3, the CIT(A) has dealt with the issues at para 3 to 5. 9. At the outset, learned AR placed on record the order of the Tribunal in assessee s own case for the A.Y.1996-97 wherein exactly similar issue was decided by the Tribunal in assessee s favour. The precise observation of the Tribunal was as under:- 45. Ground no.8 raised by the Revenue corresponding to ground no.5 raised by the assessee are on the issue of addition made with regard to suppressed production resulting in suppressed sales of biscuits. 46. Brief facts are, during the assessment proceedings, the Assessing Officer while examining tax audit report of the assessee found that as per quantitative details of consumption in production mentioned therein, percentage of yield works out to 92.55%. He, therefore, called upon the assessee to furnish quantitative details of raw material consumed in the manufacture of biscuit and confectionary separately; percentage of yield in respect of biscuits and confectionery; percentage of shortage / wastage in the process of manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tandard formula applicable for consumption and production. In response, the assessee submitted, itemwise details of consumption and production cannot be filed as it was manufacturing various items and the details submitted before the Assessing Officer were as per books of account. The assessee also submitted, quantity of itemwise ingredients for various items of confectionary was taken as a whole and no separate records were available. To explain reason for difference in percentage of yield between its manufacturing unit at Mumbai and the contract manufacturing units assessee submitted, its unit at Mumbai was manufacturing various items of biscuits and confectionary for many years while the contract manufacturing unit have started recently and were mainly manufacturing Parle-G biscuit. The assessee, though, admitted that there is a standard formula but the theoretical form is not scientific and practical for working out consumption and production. Further, the assessee submitted, the standard formula cannot be applied due to various other factors as enumerated before the Assessing Officer. The assessee also advanced various other reasons for difference in percentage of yield betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors including wastage in the manufacturing process. In this context, the assessee submitted the different variety of biscuits and confectionary manufactured by contract manufacturing units. The assessee furnishing a statement of reconciliation of sales submitted that the Assessing Officer did not consider the sales from depots and the outstandings available at different units and depots. In this context, the assessee specifically pointed out all discrepancies in figures taken by the Assessing Officer. The assessee also furnished copies of excise record to substantiate the production as recorded in the books of account. It was submitted, since, the assessment year 1992-93 the percentage of yield shown by the assessee was about 83% and in assessment year 1995-96, it was shown at 81.65%. In this context, the assessee submitted the working of yield for Mumbai unit for ParleG biscuit after considering wastage and operational loss of 350 MTs, heating loss of 1978 MTs, moisture of 405 MTs and excess weight of packaging in 642 MTs are worked out at 88.24%. It was submitted, in respect of contract manufacturing units also the percentage of yield varied between 87.85% to 100.35%. Thus, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the observations of the Assessing Officer in the assessment order submitted that the assessee was supplying all the raw materials to the contract manufacturing units. He submitted, as per the tax audit report yield of the Mumbai unit of the assessee worked out to 92.55%. Whereas, as per the statements filed before the Assessing Officer by the assessee, percentage of yield worked out to 84.50%. He submitted, in the reconciliation statement also, discrepancy was found which was again revised by the assessee. He submitted, as per the reconciliation statement, the discrepancy was found in consumption of vanaspati, sugar, maida, coco vita oil. He submitted, as per the information obtained from contract manufacturing units, percentage of average yield was found to be 91%. He submitted, before the Assessing Officer assessee could not prove that it was manufacturing a large variety of biscuits compared to contract manufacturing units. He submitted, the Assessing Officer has worked out the yield by applying a standard formula which was accepted by the Tribunal in assessee's own case. Learned Departmental Representative submitted, in the course of assessment proceedings, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Authorised Representative submitted, only if the conditions of sub-section 3 of section 145 are satisfied, the Assessing Officer can make a best judgment assessment. He submitted, the Assessing Officer has not pointed out a single instance of sales outside the books. The purchases made by the assessee have not been doubted. The production of biscuit and confectionary are fully supported by and as per Central Excise records. He submitted, all excise registers were produced before the Assessing Officer and nothing adverse was found. Reiterating the stand taken before the Departmental Authorities, learned Authorised Representative submitted/ the reason for low yield is due to the factors explained before the Departmental Authorities. He submitted, because of labour problem ultimately assessee had to close down its factory at Mumbai. He submitted, it is not possible to maintain itemwise stocks considering the variety of products manufactured by the assessee qua the contract manufacturing units which primarily manufacture ParleG. He submitted, when the consumption of raw material and production of biscuit and confectionary are regulated by the Central Excise law and the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the factory premises/ wherein, it was found that the manufacturing of products at Mumbai unit is through sophisticated machinery. In the course of assessment proceedings, the assessee has explained comparative lesser yield qua contract manufacturing units due to the following reasons:- i) Variety of biscuits manufactured at Mumbai unit compared to few variety of biscuits manufactured in contract manufacturing units; ii) In case of contract manufacturing units, due to similar size of production and type of machinery used biscuit fall on the belt and tray which are manually picked up and sorted and identified for re- use or waste. Whereas, in case of Mumbai unit production being faster it is difficult to have such control and also costs for employing labour to pick and sort out biscuit fallen on the belt and tray is much higher; iii) Due to different products lines at Mumbai unit, the average give away is much higher as compared to contract manufacturing units; iv) Mumbai unit has a much higher production capacity as compared to contract manufacturing units and due to sheer volume wastages are higher in Mumbai unit; v) Since, the contract manufacturing unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , non-mentioning of raw material others in the Annexure to the audit report cannot be considered to be very serious lapse so as to infer suppression of sales and unreliability of books of account. It is a matter of record that the goods produced by the assessee are excisable goods and subject to scrutiny and regulatory measures of Central Excise authorities. It is also a fact on record that the assessee has maintained all Central Excise registers with regard to consumption of raw materials, production of biscuits and confectionary which have been verified by the Central Excise authorities periodically and the authenticity of the entries made in the said registers have not been questioned by them. It is also a fact on record that the Central Excise registers were produced before the Assessing Officer as well as the learned Commissioner (Appeals). 53. There is no allegation by the Departmental Authorities that the consumption of raw materials and production of finished products as recorded in the Excise registers were doubted by the Central Excise authorities. It is also a fact on record that the Assessing Officer has not doubted the purchases made by the assessee. It is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment years as noted above, the assessee has shown a higher yield for the Mumbai unit in the impugned assessment year. Therefore, on over all consideration of facts and circumstances of the case, we are of the considered opinion that rejection of books of account and addition made on estimate basis alleging suppression of sale is not in accordance with law. Therefore, even a part of addition made by the Assessing Officer cannot be sustained. Accordingly, we delete the addition made by the Assessing Officer fully. Ground no.8 of the Department is dismissed and grounds no. 4 5 raised by the assessee are allowed. 10. We have gone through the orders of the authorities below as well as the order of Tribunal, and found that facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal in assessee s own case, grounds raised by the assessee are allowed whereas grounds raised by revenue are dismissed. 11. Learned DR fairly agreed that issue is covered by the order of the Tribunal in A.Y.1996-97 and the facts and circumstances during the year under consideration are same. 12. In the A.Y.1998-99, assessee has also challenged di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n at ₹ 2,35,58,718/-. The resultant difference was claimed as capital loss on redemption of preference shares. The A.O. did not agree with the above and stated that the receipt of money on redemption has to be treated as dividend within the meaning of section 2(22)(d) relying on the judgment of the Hon'ble Supreme Court in the case of CIT vs. G. Narasimham Others 236 ITR 327. He held that since the amount was to be covered within the provisions of section 2(22)(d) the question of claiming capital loss does not arise and since redemption has taken place after 30.06.1997 the dividend was not taxable as such. Therefore long term capital loss pertaining to redemption of preference shares at ₹ 35,58,718/- was disallowed. Assessee contested the same before the CIT(A). The CIT(A) vide para 9.2 considered that similar issue had come up in A.Y. 1998-99 before the CIT(A) in the case of assessee s holding company Parle Products Pvt. Ltd. in which the issue was decided against the assessee. Following the same, on identical facts the ground was rejected. There is no discussion about the issues contested by assessee in the order of CIT(A).. 34. The learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section shall not be taken as reducing the amount of its share capital. Accordingly section 2(22)(d) which deals with reduction of capital does not apply to redemption of Preference shares since redemption of such shares is not a reduction of capital in view of specific provisions of section 80(3) of the Companies Act. (c) Reliance is also placed on the decisions of the Supreme Court in the case of (i) Anarkali Sarabhai (224 ITR 422) (ii) Kartikeya Sarabhai (229 ITR 163) 35. The learned D.R., however, submitted that redemption of preference shares does not yield to capital loss and assessee claimed only indexation loss as capital loss. It was further submitted that A.O. treated the amount as deemed dividend, therefore, the question of allowing the loss does not arise. 36. In reply the learned counsel submitted that if the entire amount is treated as deemed dividend then the whole of consideration received consequent to redemption would got exempted as dividend and was not taxable and since assessee has redeemed the shares the loss would go up by same amount, if the contentions of Revenue that it is deemed dividend are to be accepted. He relied on the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as capital assets. The company redeemed them at their face value: Held accordingly, that the difference between the sum received by the appellant on redemption of the shares and the sum earlier paid by her for purchasing them, was taxable as capital gains. 38. Similar issue was also considered by Hon'ble Supreme Court in the case of Kartikeya Sarabhai vs. CIT 228 ITR 163 where there is reduction in face value of shares, the definition of transfer were discussed and held as under: - Section 2(47) of the Income-tax Act, 1961, defines transfer in relation to a capital asset. It is an inclusive definition which, inter alia, provides that relinquishment of an asset or extinguishment of any right there in amounts to a transfer of a capital asset. It is not necessary for a capital gain to arise, that there must be a sale of a capital asset. Sale is only one of the modes of transfer envisaged by section 2(47) of the Act, Relinquishment of the asset or extinguishment of any right in it, which may not amount to a sale, can also be considered as a transfer and any profit or gain which arises from the transfer of a capital assist is liable to be taxed under section 45. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of its capital, to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933, whether such accumulated profits have been capitalised or not; 41. As can be seen by the above provision, there should be a reduction of its capital and distribution to the shareholders out of the accumulated profits. Section 80(3) of the Companies Act states that the redemption of preference shares under this section by a company shall not be taken as reducing the amount of its authorised share capital. By virtue of section 80(3) redemption of preference shares cannot be considered as reduction of authorised share capital, therefore, treating them as deemed dividend does not arise, as the provisions of section 2(22){d) can only be invoked only when there is distribution of accumulated profits by way of reduction of share capital. On the facts of the case, assessee has purchased the preferential shares at a cost of ₹ 2 crores and they were redeemed at the same price of ₹ 2 crores. Therefore the question of invoking deemed dividend provision on this transaction does not arise, eventhoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, while computing capital gains, would have to decide how this property should be valued for the purpose of deciding what the assessee had received on reduction in the value of his shares, and whether any capital gains had accrued to the assessee or not. This question was not required to be considered but the Tribunal because the Tribunal came to the conclusion that there being no transfer of any capital asset, the question of capital gains did not arise. But the question would now have to be considered and decided by the Tribunal when the matter went back before it for the determination of capital gains. 42. It was further held that thus the amount distributed by a company on reduction of its share capital has two components, i.e. distribution attributable to accumulated profits and distribution attributable to capital (except capitalised profits). To the extent of accumulated profits whether such accumulated profits are capitalised or not, the return to the shareholder on reduction of share capital is a return of such accumulated profits. This part of it is taxable as dividend. The balance may be subject to tax as capital gain, if they accrue. 43. Adopting the same p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt in question can be assessed. Once he assesses a particular receipt under a particular head of income, that amount is no more available to him for assessment under another head. The Revenue cannot approbate and reprobate. It cannot be permitted to treat a part or the whole of the consideration as dividend and to assess The same as such and also t say that this will not have the effect of reducing the amount of consideration for the purpose of computation of capital gain. Redemption of preference shares amounts to transfer within the meaning of section 2(47). Section 45 will apply to such a transfer and the capital gain or loss will have to be computed. From a bare reading of section 2(22) and sections 45 and 48, it is clear that for the purpose of finding out the profits or gains arising from the transfer of a capital asset, it is necessary to know the cost of acquisition of the asset and the full value of the consideration for which the transfer is made. It is the difference between the two which is termed as profits and gains arising from t he transfer subject, however, to specific provisions, if any, contained in any other section of the Act. Section 48 deals with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of preference shares. 18. Learned DR also fairly conceded that issue is covered by the order of the Tribunal in case of subsidiary company and which has also been confirmed by the Hon ble Bombay High Court. 19. The AO has also disallowed sum of ₹ 1,76,023/- on account of advances written off. 20. We have considered rival contentions and found that AO has dealt with the issue at para 9 of his order whereas CIT(A) has dealt with the issue at para 11 of his appellate order. It appears that disallowance has been upheld considering this claim as for bad debts and not fulfilling the conditions of section 36(2) of the Act. However, since this was an advance given in the course of business and neither services rendered nor advance returned back, the claim is required to be allowed as a business loss. In the interest of justice, we restore the matter back to AO and we direct the AO to verify the facts and decide afresh. We direct accordingly. 21. Assessee is also aggrieved for not granting deduction for provision for leave encashment of ₹ 14,82,636/-. We have considered rival contentions and found that issue is squarely covered by the decision of the Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction is attributable to the wrapping machines. 27. By the impugned order, CIT(A) deleted the disallowance by following the order of his predecessor in the A.Y.1996-97. We found that issue has been decided by the Tribunal in assessee s favour in the A.Y.1996-97. The precise observation of the Tribunal was as under:- 61. In ground no.3, the assessee has challenged the disallowance of depreciation of ₹ 14,18,541 on certain plant and machinery. 62. Brief facts are, during the assessment proceedings, the Assessing Officer for verifying the claim of depreciation on plant and machinery called for necessary details. He found that the assessee had shown addition to the plant and machinery for an amount of ₹ 1,13,48,325 on which depreciation of ₹ 14,18,541 was claimed. From the details submitted, he found that the particular machine was actually imported by Parle Biscuits Ltd., a subsidiary of assessee in January 1991, since, it wanted to go into manufacturing of chocolate and other permitted items. However, as Parle Biscuits Ltd., could not finalise the idea of manufacturing of chocolate the machine was not used and lying idle until they were sold to Parle P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chines were purchased through import and it was commissioned and form part of the fixed assets in the impugned assessment year. The only reason on which the learned Commissioner (Appeals) has rejected assessee's claim of depreciation is, the assessee was unable to prove that the machinery was used in production. As could be seen from the materials placed before us, which were also before the Departmental Authorities, the machine in question is used for cutting and wrapping confectionary toffees and were delivered at ready to use condition. Thus, it is evident that the machine has no role to play in the production activity. Therefore, when the learned Commissioner (Appeals) has accepted the fact that the machine was purchased and commissioned and formed part of the fixed asset in the relevant financial year, there is no reason to disallow assessee's claim of depreciation. Moreover, the fact that in the subsequent assessment year, assessee's claim of depreciation on such machinery has been allowed has not been controverted by the learned Departmental Representative. Therefore, we delete the disallowance made by the Assessing Officer and confirmed by the learned Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Board resolutions and no correspondence/ evidences were submitted to substantiate the foreign tours. 34. As per learned AR the facts in the current year is different and therefore the above observations based on which the decision was taken will not apply in the current year. 35. As per learned AR during the year under consideration, the assessee has incurred foreign travel expenditure for directors as well as executives of the assessee. The assessee has also submitted the following documents as evidences/ proofs: i. Copies of passports and visas issued to the directors and executives of the assessee for travelling abroad for the purpose of business. ii. Copy of the extract of resolutions passed by the Board of Directors of the assessee with respect to foreign travel'; 36. Our attention was also invited to the Copy of correspondences with the foreign parties: 1. Letter from APV Baker to Mr. Ajay Chauhan with respect to the visit to Hard candy cooking and depositing plant in Tourcoing near Lille, France. 2. Letter from Kohli and Kohli to Mr. Vijay Chauhan and Mr. Ajay Chauhan with respect to Food extrusion seminar in France 3. Meeting with Strategic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year. For this purpose reliance is placed on the following decisions: Delhi High Court in case of Cheminvest Ltd. (378 ITR 33) (2015). ITAT Delhi Special Bench in case of Vireet Investment (P.) Ltd. (165 ITD 27). 46. Strategic investments are not to be considered. Reliance is placed on the decision of Bombay High Court in the case of Reliance Capital Asset Management Ltd (ITA No. 487 of 2015). 47. In the A.Y.2009-10, AO has made disallowance of ₹ 11,20,490/- u/s.14A r.w.Rule 8D. Learned AR has contended that issue has been decided by the Tribunal. In the case of its subsidiary Parle Biscuits Private Limited for assessment years 2008-09 to 2011-12 wherein it has been held that considering the balance sheet of the assessee, the disallowance of ₹ 1,00,000 would meet the ends of justice. 48. Following the reasoning given in the A.Y.2008-09, we restore this issue back to the file of the AO for deciding in terms of direction given hereinabove. 49. We also direct AO to consider only those investments wherein exempt income is received during the year. Furthermore, strategic investments are not to be considered while computing disallowance under Rule 8D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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